CICC: Maintaining Ruisheng Technology (02018) outperforming the industry rating and raising the target price to HK$61.0

The Zhitong Finance App learned that CICC released a research report stating that it maintains Ruisheng Technology's (02018) outperforming industry rating and raised the target price by 17% to HK$61.0 due to an upward shift in the consumer electronics valuation center of Hong Kong stocks, corresponding to 28.0 times/23.7 times the 2025/2026 P/E. Combined with the improvement in the expense ratio, the bank raised the company's 2025/2026 net profit by 7%/6% to 24.6/2.87 billion yuan. The current stock price corresponds to 24.0 times/20.3 times the 2025/2026 P/E.

CICC's main views are as follows:

2024 earnings are in line with the bank's and market expectations

Ruisheng's revenue in 2024 increased 34% year on year to 27.33 billion yuan, and net profit to mother increased 143% year over year to 1.8 billion yuan, in line with the bank and market expectations. Looking back at 2024, the bank believes that the main reason for the sharp increase in profit is: 1) The volume and price of optical products have risen sharply, and high-end technology is progressing smoothly. Revenue increased 38% year on year in '24, and gross margin increased 19.5ppt to 6.5% year on year. 2) Thanks to lean management and technological innovation, the gross margin of acoustics, electromagnetic transmission and structural components increased, and the overall gross margin increased 5.2 ppt to 22.1% year-on-year in 24. 3) PSS (Premium Sound Solutions) also stated that the automotive acoustics business contributed 3.52 billion yuan in revenue and 870 million yuan in gross profit.

The gross margin of the optical business increased gradually, and high-end products continued to achieve project breakthroughs

Along with the recovery in demand in the mobile phone optics industry, the return of good price competition, and the increase in the company's medium to high specification share, 1H24's gross margin of optics reversed to 4.7%. The trend of high-end 2H24 products continued, and gross margin increased to 7.9% month-on-month. Specifically, the 6P share of plastic lenses increased to more than 18% in the second half of the year, and mass production of 7P lenses was achieved; sales of optical modules increased by more than 20% year-on-year, with sales of 32MP or above and OIS modules being relatively good, driving module revenue up 55% year over year; WLG received leading camera and prism targets from many mainstream customers. The bank believes that in the context of the restart and upgrading of the optical industry, the company's optical revenue and profitability are expected to increase further as high-end products continue to break through.

Smartphone micro-innovation continues, and the company's acoustic/motor/cooling products are expected to grow steadily

As AI end-side applications accelerate and forms such as folding screens and ultra-thin models continue to be upgraded, the bank believes that smartphones may place higher requirements on product specifications such as microphones, speakers, motors, heat dissipation, and hinges. As a core supplier in these fields, Ruisheng is expected to achieve steady growth in performance.

Scenes such as vehicles, humanoid robots, and XR have blossomed more and are expected to become the second growth pole

Ruisheng has deep technical reserves in products such as acoustic systems, optical systems, and precision machined parts. The bank is optimistic that Ruisheng will reuse its lean manufacturing and design capabilities from smartphones to emerging fields and build a diversified business growth engine. Specifically, on the automotive side, the company rapidly expanded its ability to provide system-level solutions through the acquisition of PSS and integrated hardware and algorithms; in terms of robots, the company's existing product categories have already been shipped to leading robot customers, and plans to focus on dexterous systems and solutions; on the XR side, the company's optical waveguide production line for etching processes has completed mass production commissioning and has been fixed. (All based on annual reports)

Risk warning: Economic downturn risks, optical business development falls short of expectations, and expansion in new fields falls short of expectations.